Bloomberg News

Lithuanian Government Approves Deficit-Cutting 2012 Budget

October 14, 2011

(Updates with prime minister’s comments in the fourth paragraph.)

Oct. 14 (Bloomberg) -- The Lithuanian government approved a 2012 budget draft with a deficit below the limit required by the European Union.

The government aims to cut the shortfall to 2.8 percent of gross domestic product, less than the required threshold of 3 percent, from an estimated shortfall of 5.3 percent this year, Prime Minister Andrius Kubilius said today at a press conference in Vilnius. The bill will now go to parliament for approval.

The Baltic nation will implement measures including cuts for ministries and investment projects and will demand state- owned companies to divert a portion of their profits to the budget to plug the shortfall by saving 1 billion litai ($398 million). The deficit cuts are intended to bring Lithuania closer to euro adoption in 2014.

“We hope the parliament will behave responsibly and approve the budget plan that will help cope with challenges on the international markets,” Kubilius said.

The government expects to receive 540 million litai in dividends from state-owned enterprises next year from 2011 revenue. This compares with 86 million litai in dividends it received in this year’s budget.

Lithuania must also cut the deficit to meet a 2012 deadline set by the European Commission as the shortfall has breached the 3 percent limit since 2008. Failure may prompt the EU’s executive arm to impose penalties. The deficit was 7.1 percent of GDP in 2010.

The government plans to raise 5.7 billion litai on international markets next year, while the country’s total borrowing needs are estimated at 9.4 billion litai, the budget draft said. Government debt is projected at 37.3 percent of GDP next year, according to the draft.

The approval of the plan for a 2.8 percent shortfall next year in parliament may result in a credit-rating upgrade, Finance Minister Ingrida Simonyte said in a Bloomberg interview on Oct. 11.

“There’d be grounds for rating companies to review their present assessment and consider a more positive rating,” she said.

The Kubilius-led government implemented austerity measures equal to 12 percent of GDP through 2009 and 2010 to grapple with a ballooning deficit and a 14.8 percent drop in economic output.

--Editors: Douglas Lytle, Andrew Langley

To contact the reporter on this story: Milda Seputyte in Vilnius at mseputyte@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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